Augusta Resource adopts shareholder rights plan to fend off potential hostile takeover, coincidentally slumping stock rallies

Augusta Resource Corporation is taking steps to defend a possible hostile takeover as it continues to seek state and federal permits to construct the Rosemont open-pit copper mine in the Santa Rita Mountains on the Coronado National Forest southeast of Tucson.

Vancouver, B.C.-based Augusta announced today that its board has adopted a “Shareholder Rights Plan” designed to increase shareholder value in the event of an unsolicited take-over bid.

The plan goes into effect April 30, 2013 and is subject to shareholder approval at Augusta’s June 20 annual meeting.

The announcement coincided with a 4.85 percent gain in Augusta’s stock to close at $2.38 a share on the NASDAQ. Augusta was trading as low as $2.08 early Thursday before rallying.

Dundee Securities, a Toronto-based analyst that tracks Augusta, cautioned investors Friday not to conclude that a hostile take over is imminent.

“We believe that any near term takeout speculation based on today’s release has no merit,” Dundee said in a press released. (See Dundee story.)

Augusta’s adoption of the shareholder plan comes after Toronto-based HudBay Minerals Inc. increased its stake in Augusta to 15.03 percent of outstanding common shares. Like many copper stock, Augusta’s stock price has been depressed as copper prices hover near 18 month lows.

“We are not aware of any pending hostile bid, but in our view it is incumbent on our Board to be prepared,” Augusta chairman Richard Warke said in a prepared statement. “We are not willing to allow a predatory buyer to take advantage of these market conditions to acquire our world class Rosemont copper project at less than fair value.”

The shareholder plan is triggered if any buyer acquires more than 15 percent of the company’s stock. The plan entitles existing shareholders to purchase additional shares at a substantial discount to market price.

HudBay’s recent acquisition to control 15.03 percent of Augusta is grandfathered, but any subsequent purchases by HudBay would trigger the plan. HudBay has increased its Augusta holdings to 23 million shares, an increase of 3 million shares in the last month.

HudBay has played a major role in generating cash for Augusta, which has no other assets other than its U.S. subsidiary Rosemont Copper Company.

In August 2010, Augusta sold HudBay 10.9 million units at $2.75 per unit in a private placement for gross proceeds of Cdn $30 million.

Each unit consisted of one share of common stock and one-half of a share purchase warrant. Each warrant was exercisable into one common share at $3.90. HudBay exercised the warrants in March 2011, increasing its share in Augusta to more than 16 million shares.

HudBay has been aggressively purchasing shares in junior mining companies such as Augusta as part of its strategic plan to develop new mineral resources.

“We decided we would be the partner of choice to juniors because we decided that was where we were going to source our growth opportunities,” HudBay CEO David Garofalo said in a March interview with the Toronto Globe & Mail.